Vedanta shares: Risk-reward attractive, stock price target Rs 520, says CLSA

Foreign brokerage CLSA in its latest note maintained 'Outperform' rating on Vedanta Ltd, suggesting a target price of Rs 520 on the stock. The Vedanta stock has underperformed peers and has not followed the uptick in metal prices in the past one month, CLSA said while expecting the trend to reverse soon. 

Vedanta shares are up 1.4 per cent in the past one month. The stock is up 77 per cent year-to-date.

Citing a positive outlook on metals prices and high dividend yields, it sees risk-reward attractive for the Vedanta stock. CLSA said the scrip seems to be factoring in aluminium price at $170 per tonne and zinc price at $140 per tonne, which are lower than spot prices, even after assuming no benefits of ongoing margin expansion projects.

CLSA said the recent corporate actions including the stake sales in Hindustan Zinc and Vedanta and dividends by Hindustan Zinc augur well for Vedanta's deleveraging. The foreign brokerage continues to prefer base metal stocks over ferrous names. 

Vedanta shares settled at Rs 455.20 on Wednesday. CLSA's target price on the stock at Rs 520 suggests a 14 per cent upside over this price. 

Earlier this week, the board of Hindustan Zinc approved a second interim dividend of Rs 19 per equity share for FY25, amounting to Rs 8,028.11 crore. The record date for the purpose of payment of dividend is Wednesday, August 28. Vedanta, which promotes Hindustan Zinc, and owned 2,74,31,54,310 shares or 64.92 per cent stake, would receive Rs 5,212 crore in dividend payments.

Vedanta Ltd has raised about Rs 3,200 crore from its OFS in Hindustan Zinc Ltd. Vedanta is seen utilising the proceeds generated from the OFS for deleveraging its balance sheet and investment in its growth projects. This, coupled with the Rs 8,500 crore qualified institutional placement, is seen helping it bring down its debt.